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Spirit Airlines Reports Third Quarter 2016 Results

MIRAMAR, Fla., Oct. 25, 2016 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (NASDAQ:SAVE) today reported third quarter 2016 financial results.

  • GAAP net income for the third quarter 2016 was $81.4 million ($1.17 per diluted share), or $86.3 million ($1.24 per diluted share)1 excluding special items.
  • GAAP operating margin for the third quarter 2016 was 21.8 percent, or 23.0 percent2 excluding special items.
  • Spirit ended the third quarter 2016 with unrestricted cash, cash equivalents, and short-term investments of $926.0 million.
  • Spirit's return on invested capital (before taxes and excluding special items) for the twelve months ended September 30, 2016 was 25.3 percent3.

“During the third quarter 2016, we saw sequential improvement in total revenue directly related to our own revenue initiatives as well as a modest improvement in the industry pricing environment, and are encouraged by the constructive trends we are seeing,” said Bob Fornaro, Spirit’s President and Chief Executive Officer. “On the operations front, we made good strides toward improving our operational performance and for the months of July, August, and September, we set new company records for on-time performance. I applaud our team for the progress made to date towards achieving consistent reliability."

Revenue Performance
For the third quarter 2016, Spirit's total operating revenue was $621.3 million, an increase of 8.1 percent compared to the third quarter 2015, driven by a 12.6 percent increase in flight volume and 0.8 point increase in load factor, partially offset by a decrease in operating yields.

Total revenue per available seat mile (TRASM) for the third quarter 2016 decreased 7.0 percent compared to the same period last year, primarily driven by a decrease in passenger yield as a result of industry competitive pricing pressures. Although yields decreased year over year, throughout the third quarter 2016, the Company saw sequential improvement in the rate of decline.

On a per passenger flight segment ("PFS") basis, total revenue per PFS for the third quarter 2016 decreased 9.0 percent, or $10.84, year over year to $109.51, primarily driven by a 12.9 percent, or $8.62, decrease in ticket revenue per PFS related to industry competitive pricing pressures. Non-ticket revenue declined 4.2 percent, or $2.22, year over year on a per PFS basis to $51.17, primarily driven by a modest decline in bag revenue per PFS.

Cost Performance
Total GAAP operating expenses, including special items of $7.8 million4 primarily related to lease termination charges, increased 16.4 percent, or $68.5 million, year over year to $486.1 million driven by an increase in flight volume. Adjusted operating expense for the third quarter 2016 increased 14.6 percent, or $61.0 million, to $478.3 million5 on a capacity increase of 16.2 percent year over year.

Aircraft fuel expense increased in the third quarter 2016 by 5.1 percent, or $5.9 million, compared to the same period last year, due to a 15.7 percent increase in fuel gallons consumed, partially offset by an 8.8 percent decrease in the average economic fuel cost per gallon6.

Spirit reported third quarter 2016 cost per available seat mile ("ASM") excluding special items and fuel (“Adjusted CASM ex-fuel”)5 of 5.48 cents, an increase of 1.7 percent compared to the same period last year, primarily driven by higher salaries, wages, and benefits, and higher maintenance expense partially offset by lower aircraft rent per ASM.

"Our team continues to do a good job holding the line on core cost inflation. In addition, operational reliability improvements during the quarter produced more cost savings than we anticipated, provided a better product for our customers, and a better environment for our team members: a true "win-win-win" scenario," said Ted Christie, Spirit's Chief Financial Officer.

Labor
Spirit and its pilots, represented by the Airline Pilots Association, remain in open contract negotiations under the supervision of the National Mediation Board.

Fleet
During the third quarter 2016, Spirit took delivery of 2 new A321ceo aircraft, ending the quarter with 89 aircraft in its fleet. Also, during the quarter, Spirit purchased three A319 aircraft off lease and extended the leases for two other A319 aircraft.

Share Repurchase
During the third quarter 2016, Spirit returned $38 million to shareholders by repurchasing approximately 0.9 million shares. Year to date Spirit has returned $100 million to shareholders by repurchasing approximately 2.3 million shares.

Recent New Service Announcements
Boston - Orlando (10/7/16)
Philadelphia - Orlando (10/7/16)
Newark - Fort Lauderdale (10/30/16)
Newark - Orlando (10/30/16)
Kansas City - Orlando (11/10/16)
Akron-Canton - Fort Lauderdale (11/10/16)
Akron-Canton - Orlando (11/10/16)
Akron-Canton - Tampa (11/10/16)*
Akron-Canton - Fort Myers (11/11/16)*
Niagara Falls - Orlando (11/17/16)
Plattsburgh - Orlando (11/17/16
Baltimore - Fort Myers (11/10/16)
Baltimore - Tampa (11/10/16)
Fort Lauderdale - Havana, Cuba (12/1/16)**
Newark - Myrtle Beach (3/9/17)
Akron-Canton - Myrtle Beach (4/27/17)*
Akron-Canton - Las Vegas (4/27/17)

*seasonal
**subject to foreign government approval

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, October 25, 2016, at 9:00 a.m. ET. A live audio webcast of the conference call will be available to the public on a listen-only basis at http://ir.spirit.com. An archive of the webcast will be available under Webcasts & Presentations for 60 days.

About Spirit Airlines:
Spirit Airlines (NASDAQ:SAVE) is committed to offering the lowest total price to the places we fly, on average much lower than other airlines. Our customers start with an unbundled, stripped-down Bare Fare™ and get Frill Control™ which allows them to pay only for the options they choose - like bags, seat assignments and refreshments - the things other airlines bake right into their ticket prices. We help people save money and travel more often, create new jobs and stimulate business growth in the communities we serve. With our Fit Fleet™, the youngest fleet of any major US airline, we operate more than 400 daily flights to 56 destinations in the U.S., Latin America and the Caribbean. Come save with us at www.spirit.com.

Investors are encouraged to read the Company's periodic and current reports filed with or furnished to the Securities and Exchange Commission, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, for additional information regarding the Company.

End Notes
(1) See "Reconciliation of Adjusted Net Income to GAAP Net Income" table below for more details.
(2) See "Reconciliation of Adjusted Operating Income to GAAP Operating Income" table below for more details.
(3) See "Calculation for Return on Invested Capital" table below for more details.
(4) See "Special Items" table for more details.
(5) See "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below for more details.
(6) See "Reconciliation of Economic Fuel Expense to GAAP Fuel Expense" table below for more details.

Forward-Looking Statements
Statements in this release and certain oral statements made from time to time by representatives of the Company contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act) which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions intended to identify forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below. Furthermore, such forward-looking statements speak only as of the date of this release. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Additional risks or uncertainties (i) that are not currently known to us, (ii) that we currently deem to be immaterial, or (iii) that could apply to any company, could also materially adversely affect our business, financial condition, or future results. You should carefully consider the risks described above and the other information in this release. If any of the above risks materialize, our business could be materially harmed, and our financial condition and results of operations could be materially and adversely affected. References in this report to “Spirit,” “we,” “us,” “our,” or the “Company” shall mean Spirit Airlines, Inc., unless the context indicates otherwise. Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings, including but not limited to the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

SPIRIT AIRLINES, INC.
Condensed Statement of Operations
(unaudited, in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
2016 2015 Change 2016 2015 Change
Operating revenues:
Passenger$331,004 $319,812 3.5 $900,031 $901,851 (0.2)
Non-ticket290,325 255,029 13.8 843,574 719,766 17.2
Total operating revenues621,329 574,841 8.1 1,743,605 1,621,617 7.5
Operating expenses:
Aircraft fuel121,844 115,899 5.1 321,018 356,232 (9.9)
Salaries, wages and benefits120,190 95,081 26.4 349,530 281,175 24.3
Aircraft rent49,367 53,525 (7.8) 151,433 159,440 (5.0)
Landing fees and other rents39,345 34,577 13.8 114,096 98,487 15.8
Distribution25,565 23,074 10.8 73,190 65,920 11.0
Maintenance, materials and repairs30,443 21,473 41.8 72,010 61,904 16.3
Depreciation and amortization25,304 19,628 28.9 73,370 51,630 42.1
Other operating66,277 54,151 22.4 197,833 156,071 26.8
Loss on disposal of assets423 290 45.9 1,166 1,300 (10.3)
Special charges (credits)7,355 (76) nm 31,609 673 nm
Total operating expenses486,113 417,622 16.4 1,385,255 1,232,832 12.4
Operating income135,216 157,219 (14.0) 358,350 388,785 (7.8)
Other (income) expense:
Interest expense11,362 5,951 nm 29,588 13,182 nm
Capitalized interest(3,067) (3,030) 1.2 (9,163) (8,392) 9.2
Interest income(1,222) (233) nm (4,235) (544) nm
Other expense180 166 8.4 407 282 44.3
Total other (income) expense7,253 2,854 nm 16,597 4,528 nm
Income before income taxes127,963 154,365 (17.1) 341,753 384,257 (11.1)
Provision for income taxes46,581 57,251 (18.6) 125,367 141,437 (11.4)
Net income$81,382 $97,114 (16.2) $216,386 $242,820 (10.9)
Basic earnings per share$1.17 $1.35 (13.3) $3.06 $3.35 (8.7)
Diluted earnings per share$1.17 $1.35 (13.3) $3.05 $3.34 (8.7)
Weighted average shares, basic69,727 71,738 (2.8) 70,689 72,432 (2.4)
Weighted average shares, diluted69,808 71,884 (2.9) 70,832 72,680 (2.5)




SPIRIT AIRLINES, INC.
Condensed Statements of Comprehensive Income
(unaudited, in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2016 2015 2016 2015
Net income$81,382 $97,114 $216,386 $242,820
Unrealized gain (loss) on interest rate derivative instruments, net of deferred taxes of $0, ($320), $0 and ($511) (553) (909)
Unrealized gain (loss) on investment securities, net of deferred taxes of $3, $0, $3 and $04 4
Interest rate swap losses reclassified into earnings, net of taxes of $32, $15, $97 and $1556 25 170 25
Other comprehensive income (loss)$60 $(528) $174 $(884)
Comprehensive income$81,442 $96,586 $216,560 $241,936




SPIRIT AIRLINES, INC.
Condensed Balance Sheets
(unaudited, in thousands)
September 30, December 31,
2016 2015
Assets
Current assets:
Cash and cash equivalents$825,904 $803,632
Investment securities100,083
Accounts receivable, net35,892 28,266
Aircraft maintenance deposits87,105 73,415
Prepaid income taxes6,060 72,278
Prepaid expenses and other current assets48,455 48,749
Total current assets1,103,499 1,026,340
Property and equipment:
Flight equipment1,386,310 834,927
Ground property and equipment109,451 74,814
Less accumulated depreciation(105,653) (65,524)
1,390,108 844,217
Deposits on flight equipment purchase contracts272,690 286,837
Long-term aircraft maintenance deposits198,426 206,485
Deferred heavy maintenance, net79,878 89,127
Other long-term assets85,024 77,539
Total assets$3,129,625 $2,530,545
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable$29,906 $17,043
Air traffic liability238,793 216,831
Current maturities of long-term debt84,443 49,637
Other current liabilities217,779 182,729
Total current liabilities570,921 466,240
Long-term debt, less current maturities894,809 596,693
Long-term deferred income taxes299,231 221,481
Deferred gains and other long-term liabilities20,108 20,821
Shareholders’ equity:
Common stock7 7
Additional paid-in-capital549,375 544,277
Treasury stock, at cost(218,572) (116,182)
Retained earnings1,015,140 798,754
Accumulated other comprehensive loss(1,394) (1,546)
Total shareholders’ equity1,344,556 1,225,310
Total liabilities and shareholders’ equity$3,129,625 $2,530,545




SPIRIT AIRLINES, INC.SPIRIT AIRLINES, INC.
Condensed Statement of Cash Flows
(unaudited, in thousands)
Nine Months Ended September 30,
2016 2015
Operating activities:
Net income216,386 242,820
Adjustments to reconcile net income to net cash provided by operations:
Unrealized losses on open derivative contracts, net 2,239
Losses reclassified from other comprehensive income267
Equity-based compensation5,503 6,999
Allowance for doubtful accounts213 7
Amortization of deferred gains and losses3,837 730
Depreciation and amortization73,370 51,630
Deferred income tax expense77,627 63,960
Loss on disposal of assets1,166 1,300
Lease termination cost31,609
Changes in operating assets and liabilities:
Accounts receivable(7,840) (10,374)
Aircraft maintenance deposits(38,299) (17,488)
Prepaid income taxes66,218
Long-term deposits and other assets(43,252) (44,294)
Accounts payable(7,044) 2,340
Air traffic liability21,684 56,960
Other liabilities38,596 12,161
Net cash provided by operating activities440,041 368,990
Investing activities:
Proceeds from sale of property and equipment50
Capitalized interest(7,032) (2,707)
Pre-delivery deposits for flight equipment, net of refunds(109,260) (87,658)
Purchase of investment securities(100,076)
Purchase of property and equipment(447,455) (451,799)
Net cash used in investing activities(663,773) (542,164)
Financing activities:
Proceeds from issuance of long-term debt378,569 416,000
Proceeds from stock options exercised92 32
Payments on debt and capital lease obligations(29,663) (16,609)
Proceeds from sale and leaseback transactions 7,300
Excess tax benefit (deficiency) from equity-based compensation(497) 8,818
Repurchase of common stock(102,390) (112,162)
Debt issuance costs(107) (14,092)
Net cash provided by financing activities246,004 289,287
Net increase in cash and cash equivalents22,272 116,113
Cash and cash equivalents at beginning of period803,632 632,784
Cash and cash equivalents at end of period$825,904 $748,897
Supplemental disclosures
Cash payments for:
Interest, net of capitalized interest$26,025 $3,851
Income taxes paid, net of refunds$(18,169) $95,135



SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
Three Months Ended September 30,
Operating Statistics2016 2015 Change
Available seat miles (ASMs) (thousands)6,507,204 5,597,997 16.2%
Revenue passenger miles (RPMs) (thousands)5,599,370 4,768,692 17.4%
Load factor (%)86.0 85.2 0.8pts
Passenger flight segments (thousands)5,674 4,776 18.8%
Block hours98,586 88,045 12.0%
Departures38,310 34,032 12.6%
Total operating revenue per ASM (TRASM) (cents)9.55 10.27 (7.0)%
Average yield (cents)11.10 12.05 (7.9)%
Average ticket revenue per passenger flight segment ($)58.34 66.96 (12.9)%
Average non-ticket revenue per passenger flight segment ($)51.17 53.39 (4.2)%
Total revenue per passenger flight segment ($)109.51 120.35 (9.0)%
CASM (cents)7.47 7.46 0.1%
Adjusted CASM (cents) (1)7.35 7.45 (1.3)%
Adjusted CASM ex-fuel (cents) (2)5.48 5.39 1.7%
Fuel gallons consumed (thousands)78,288 67,684 15.7%
Average economic fuel cost per gallon ($)1.56 1.71 (8.8)%
Aircraft at end of period89 76 17.1%
Average daily aircraft utilization (hours)12.3 12.8 (3.9)%
Average stage length (miles)968 983 (1.5)%


Nine Months Ended September 30,
Operating Statistics2016 2015 Change
Available seat miles (ASMs) (thousands)18,909,627 15,540,759 21.7%
Revenue passenger miles (RPMs) (thousands)16,219,093 13,267,314 22.2%
Load factor (%)85.8 85.4 0.4pts
Passenger flight segments (thousands)16,268 13,271 22.6%
Block hours290,529 248,941 16.7%
Departures111,495 95,240 17.1%
Total operating revenue per ASM (TRASM) (cents)9.22 10.43 (11.6)%
Average yield (cents)10.75 12.22 (12.0)%
Average ticket revenue per passenger flight segment ($)55.32 67.96 (18.6)%
Average non-ticket revenue per passenger flight segment ($)51.85 54.24 (4.4)%
Total revenue per passenger flight segment ($)107.17 122.20 (12.3)%
CASM (cents)7.33 7.93 (7.6)%
Adjusted CASM (cents) (1)7.15 7.93 (9.8)%
Adjusted CASM ex-fuel (cents) (2)5.45 5.63 (3.2)%
Fuel gallons consumed (thousands)225,851 187,541 20.4%
Average economic fuel cost per gallon ($)1.42 1.91 (25.7)%
Average daily aircraft utilization (hours)12.6 12.8 (1.6)%
Average stage length (miles)978 982 (0.4)%

(1) Excludes special items.

(2) Excludes economic fuel expense and special items.

The Company is providing a reconciliation of GAAP financial information to non-GAAP financial information as it believes that non-GAAP financial measures provide management and investors the ability to measure the performance of the Company on a consistent basis. These non-GAAP financial measures have limitations as analytical tools. Because of these limitations, determinations of the Company's operating performance excluding unrealized gains and losses or special items should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Special Items

Three Months Ended
September 30,
(in thousands)2016 2015
Operating special items include the following (1):
Unrealized losses (gains) related to fuel derivative contracts$ $82
Loss on disposal of assets423 290
Special charges7,355 (76)
Total operating special items$7,778 $296

Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
(unaudited)

Three Months Ended
September 30,
(in thousands, except CASM data in cents)2016 2015
Total operating expenses, as reported$486,113 $417,622
Less operating special items (1)7,778 296
Adjusted operating expenses, non-GAAP (2)478,335 417,326
Less: Economic fuel expense121,844 115,817
Adjusted operating expenses excluding fuel, non-GAAP (3)$356,491 $301,509
Available seat miles6,507,204 5,597,997
CASM (cents)7.47 7.46
Adjusted CASM (cents) (2)7.35 7.45
Adjusted CASM ex-fuel (cents) (3)5.48 5.39

(1) Special items include unrealized gains and losses related to outstanding fuel derivative contracts, loss on disposal of assets, and special charges. Special charges for the third quarter 2016 are primarily related to lease termination costs.

(2) Excludes operating special items.

(3) Excludes operating special items and economic fuel expense as described in the "Reconciliation of Economic Fuel Expense to GAAP Fuel Expense" table below.

Reconciliation of Adjusted Net Income to GAAP Net Income
(unaudited)

Three Months Ended
September 30,
(in thousands, except per share data) 2016 2015
Net income, as reported$81,382 $97,114
Add: Provision for income taxes46,581 57,251
Income before income taxes, as reported127,963 154,365
Pre-tax margin, GAAP20.6% 26.9%
Add operating special items (1)7,778 296
Income before income taxes, non-GAAP (2)135,741 154,661
Adjusted pre-tax margin, non-GAAP (2)21.8% 26.9%
Provision for income taxes (3)49,412 57,361
Adjusted net income, non-GAAP (2)(3)$86,329 $97,300
Weighted average shares, diluted69,808 71,884
Adjusted net income per share, diluted (2)(3)$1.24 $1.35

Reconciliation of Adjusted Operating Income to GAAP Operating Income
(unaudited)

Three Months Ended
September 30,
(in thousands)2016 2015
Operating income, as reported$135,216 $157,219
Operating margin, GAAP21.8% 27.3%
Add operating special items (1)7,778 296
Adjusted operating income, non-GAAP (2)$142,994 $157,515
Adjusted operating margin, non-GAAP (2)23.0% 27.4%

(1) See "Special Items" for more details.

(2) Excludes operating special items.

(3) Assumes the same marginal tax rate as is applicable to GAAP net income.

The Company believes economic fuel expense is the best measure of the effect fuel prices are currently having on our business, because it most closely approximates the net cash outflow associated with purchasing fuel used for our operations during the period. Economic fuel expense is defined as into-plane fuel expense, realized gains or losses on derivative contracts, plus the economic premium expense related to fuel option contracts in the period the option is benefiting. The key difference between aircraft fuel expense as recorded in our statement of operations and economic fuel expense is unrealized mark-to-market changes in the value of aircraft fuel derivatives outstanding and the timing of premium gain or loss recognition on our outstanding fuel option contracts. Many industry analysts evaluate airline results using economic fuel expense, and it is used in our internal management reporting.

Reconciliation of Economic Fuel Expense to GAAP Fuel Expense
(unaudited)

Three Months Ended
September 30,
(in thousands, except per gallon data)2016 2015
Fuel expense
Aircraft fuel, as reported$121,844 $115,899
Less:
Unrealized losses (gains) related to fuel derivative contracts 82
Economic fuel expense, non-GAAP$121,844 $115,817
Fuel gallons consumed78,288 67,684
Economic fuel cost per gallon, non-GAAP$1.56 $1.71

Calculation of Return on Invested Capital
(unaudited)

Twelve Months Ended
(in thousands)September 30, 2016
Operating Income$478,687
Add operating special items (1)31,091
Adjustment for aircraft rent203,524
Adjusted operating income (2)713,302
Tax (36.8%) (3)262,495
Adjusted operating income, after-tax450,807
Invested Capital
Total debt$979,252
Book equity1,344,556
Less: Unrestricted cash, cash equivalents & short-term investments925,987
Add: Capitalized aircraft operating leases (7x Aircraft Rent)1,424,668
Total invested capital2,822,489
Return on invested capital (ROIC), pre-tax (2)25.3%
Return on invested capital (ROIC), after-tax (2)(3)16.0%

(1) Special items include unrealized gains or losses related to outstanding fuel derivative contracts, loss on disposal of assets, and special charges primarily related to lease termination costs.

(2) Excludes special items as described above.

(3) Assumes the same marginal tax rate as is applicable to GAAP net income for the twelve months ended September 30, 2016.

Investor Relations Contact: DeAnne Gabel InvestorRelations@Spirit.com (954) 447-7920 Media Contact: Paul Berry Paul.Berry@Spirit.com (954) 628-4827

Source:Spirit Airlines, Inc.